Deleveraging and Endogenous Growth

Policies designed to shrink the size of the financial sector following the global crisis may have weakened long-term growth by reducing spending on research and development, according to research by Maarten de Ridder and Coen Teulings.

July 13, 2017 2:50 a.m. ET
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Policies designed to shrink the size of the financial sector following the global crisis may have weakened long-term growth by reducing spending on research and development, according to research by Maarten de Ridder and Coen Teulings. Inspired by endogenous growth theory, they find that R&D spending was weaker in those businesses whose “preferred” banks were severely affected by the crisis. “Policies to rapidly reduce the size of the financial sector during the crisis are more likely to have harmed than fostered growth,” they write. “Such policies further tighten a firm’s access to credit, and hence its ability to...

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